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Does my business need a Board of Directors?

Larger companies have Boards of Directors to provide governance over the company. The question is, does your small or micro-business need a Board?

Boards of Directors have different roles from company management. Directors provide a layer of governance while management provide the leadership over the operations of the company. Directors provide strategic oversight not operational management. Directors set the company’s strategic goals, vision and direction, its limitations of purpose, and the accountability frameworks, and assess management’s performance in following strategy and accountability. Management on the other hand oversee the day to day operations and allocates resources in the pursuit of strategy.

Clearly larger corporations need this distinct role, especially if they report to shareholders who do not have a working knowledge of the day to day operations of the company. In this way Boards provide transparency for stakeholders.

On the other hand, in a small business that is owner-operated, the manager is usually the owner, and they may also be nominally “on the Board” if the small business is incorporated. Other micro-businesses may not even be incorporated and may only have family members as employees. Do these businesses need a Board?

I would argue that in many instances a “Board” can be beneficial to the small or micro business, and to their owners.

Granted, this “Board” may not actually be a legal Board of Directors, particularly if the business is not incorporated. However even if you call it something like an “Advisory Committee” it can provide many benefits.

There are also disadvantages.

Depending on the legal structure of your business, the people who agree to sit on this “Board” may be opening themselves up to risk. You (and they) will need to satisfy yourself that these risks are mitigated through insurance and legal advice.

Unless you are absolutely clear what their charter or remit is, the “Board” may take it upon itself to decide matters beyond its remit, causing problems for management. You, as business owner, will need to be clear which hat you are wearing – employee, owner. manager or Board member. It can cause confusion.

It can lead to additional expense – you may need to pay members, you will certainly need additional resources invested in things like keeping minutes, providing separate reports to them (usually you might not, as manager, be reporting to yourself as owner, but with a Boardf you should provide reports to them to ensure their understanding of the business).

On the other hand there are substantial benefits.

  • Running a small business is lonely – having a “Board” of people willing to help provides you with valuable moral support to bounce ideas off;
  • A number of minds is better than just one – a good Board provides different points of view and different ideas, always useful when you are otherwise on your own;
  • They can keep you honest – as embarrassing as this may tuirn out to be, a Board operating as a governing committee can help you keep clear your roles as employee, manager and owner, and ask awkward questions about why you have not achieved certain things that had been agreed to;
  • Independent thinking – assuming they have no axe to grind, they can provide an independent opinion on your ideas, and an honest view on where you stand;
  • Expertise – depending on who is on the “Board” you can have the expertise from finance, marketing, legal and other areas provided in a Board context.

If you think having a Board in your small business is a good idea, even if it is just a panel of customers, advisors and other stakeholders, how should you go about setting one up?

Firstly go to see a lawyer about the risks of setting one up and ask the lawyer to work with you to provide mitigation strategies for those risks – unless he flat out rules it out from a legal perspective, don’t let them talk you out of the idea.

Prepare a Charter for the Board. Unless your business is incorporated, and you will actually appoint people as officers of the company it is likely that this “Board” will not be regulated by corporate legislation and have legal rules around its role. A Charter sets up those rules. The Charter should include matters such as what the Board is set up to do; how it does that work; what its powers, rights and limitations are; how it decides things; and so on. For example is it only advisory, or do you wish to formalise it and allow yourself to follow its decisions. Before you decide on the obvious, let me say that there is some merit to allow yourself to be ruled by its decisions – it keeps you honest!

Decide if you will be the Chairperson, or should that role go to an independent person with the experience.

Decide who should be on the Board. This is not only about personalities but also about skills and expertise. Who would add value to the Board? What type of skills and points of view would be of value? Should there be a balance of genders to provide different perspectives?

Decide on processes – how often will it meet, what is the standard agenda, what is the accepted quorum?

Set up a Board Calendar – when should the Board look at strategic planning, review management performance, review policies?

Set up a formal review process to see if it is working for you and for the members.

Finally, get started!

What do you think? Does your business have a Board and how is it working? Do you think your small business would benefit by having a Board?

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